by Dave Kranzler, Investment Research Dynamics:
Apparently that imbecilic Goldman Sachs commodities analyst, Jeff Currie, was on CNBC’s Power Lunch urging viewers to short gold. He’s been wrong since his initial $800 target on gold he set about 2 years ago. In fact, using Currie as a contrarian indicator for buying gold has become possibly more reliable that the legendary “Cramer” and “Gartman” contrarian indicators.
What you won’t hear discussed on CNBC, or Bloomberg or Fox Biz for that matter, is the powerful move that’s being made in the mining stocks, especially the junior mining stocks. Since hitting a low of 100 on January 19, the HUI is index is up 94% as I write this. If the SPX or Dow went up 94% in 2 1/2 months, Maria Bartiromo and Liz Clayman would be doing naked cartwheels on tv.
The junior miners as represented by the GDXJ ETF since January 19th is also up 94%. But the GDXJ is not a true junior mining stock index. Many exploration stocks are up 300-400% YTD. And they are still substantially below the highs they reached in 2010 and early 2011. I pointed out earlier this year that the HUI index doubled from late October 2008 to December 31, 2008 – and then it more than doubled again over the next 2 1/2 years. I suggested that not only could it do that again, but this time around the move would be even more more powerful and produce an even bigger rate or return ultimately.
Why? Over the last 4 1/2 years the valuation of mining stock sector relative to price of goldreached its lowest point in history. I don’t time to dig up the graphs illustrating this that have been published recently, but the HUI graph on the right somewhat demonstrates this point. The HUI index closed on April 7 at 186 with gold around $1230. As the graph shows, the HUI hit 186 in early 2003 with gold at $350. In other words, in the early years of the emerging secular gold bull market, in relation to the price of gold the larger cap mining stocks were valued at nearly 3 1/2 times greater than their current level of valuation.
The beat down in the junior miners over the last four-plus years was even worse. Many of them with proved gold/silver in the ground were trading at valuations below the amount of cash they held on their balance sheet. The good quality exploration juniors had become insanely cheap.
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